Once a year, at this time, we release our update on the telecom and digital infrastructure sectors. Mobile World Congress (MWC 2024) serves as a catalyst, helping us validate our market assumptions and gain new insights. This year, our primary observation is that these sectors are undergoing a transformative period characterized by divestments and consolidation. Companies and financial investors in these sectors now have a unique opportunity to capitalize on attractive valuations. In this post, I’ll highlight some key trends briefly. For the complete write-up, you can download our Insight Note below.
Trend 1: Technology Oversupply and Undersupply
There is an oversupply of telecom technologies, such as multitude of Open RAN radios and a proliferation of low earth orbit satellite constellations. This abundance is driving the industry towards consolidation, creating an environment for mergers and acquisitions.
Conversely, the data center infrastructure space faces undersupply, particularly in next-generation data center components like AI chips, high-speed networking interconnects, and high-density AI-ready data centers. This scarcity results from burgeoning demand driven by the growth of the public cloud and the AI wave. Here, a few players are poised to emerge as winners while others may exit the race.
Trend 2: National Technological Development and Sovereignty
Countries are increasingly focusing on developing technologies domestically, driven by a mix of geopolitical tensions and a quest for technology sovereignty. This trend is evident in the efforts to develop national alternatives in different areas such as LEO satellite constellations, radio access network solutions, and quantum cryptography.
The race for technological sovereignty is also impacting the digital infrastructure space, with regulators emphasizing data privacy and security rules, leading to the proliferation of country-based cloud and data center platforms.
Trend 3: Geopolitical Frictions and Technology Decoupling
Geopolitical considerations play a significant role in shaping the telecom and digital infrastructure sectors. Beyond export controls and market closures to specific companies, geopolitics contribute to the duplication of products and services. Notably, low earth orbit (LEO) satellite constellations, initially conceived for global service, are now being integrated into national or regional security strategies. We even see geopolitical tensions extending to international standards organizations like the ITU and 3GPP, raising the risk of standards bifurcation along national and regional lines.
All of the above trends – geopolitics, technology sovereignty, and technology oversupply – are interrelated and feed into each other. Additionally, several other trends significantly impact these sectors. For example, the burden of debt and the prevailing high-interest rate environment are key drivers behind much of the merger and acquisition activity. Moreover, noteworthy is the substantial government expenditure on telecom infrastructure buildouts, semiconductors, and related areas.
Sampling of Technology Themes
In our Insight Note, we provide an assessment of several areas within the telecom sector:
- Satellite-Mobile Convergence
- Private Wireless Networks (PWN)
- 5G Advanced and 6G
- Artificial Intelligence
- Telco API Frameworks
- Digital Twins
- Green Networks and Power Efficiency
If interested in insights on any of the above topics or others, feel free to contact me. We limit the number of published topics, so there’s more to explore!
Pingback: Perspectives on the Satellite Industry - Frank Rayal